EIA Raises Outlook for OPEC by 30,000 bpd

Jim Brown
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That is a drop in the proverbial bucket but still another monthly increase for the EIA. The government agency said production from OPEC nations is expected to average 29.5 million barrels per day in 2010. That is 30,000 higher than the estimate in February. Meanwhile the IEA chief is sounding the alarm.

This is how the EIA works its magic. They manipulate the data 30 days at a time so they are never very far from the actual numbers. They also took a stab at the 2011 estimate saying they expect OPEC production to decline by 20,000 bpd.

These numbers will have no impact on the OPEC production meeting on March 17th. OPEC is expected to keep quotas level although there was some chatter from an OPEC minister on Wednesday about "current production is too high for expected demand." Whether that was a trial balloon to see if they could get a rise in prices or just an idle comment is unknown.

The 4.2 mbpd production cut in late 2008 is currently only impacting deliveries by -2.4 mbpd because compliance with the new quotas is only at 57%.

Saudi Arabia production averages 8.2 mbpd in February with a reported 3.8 mbpd in spare capacity. The EIA estimates that OPEC spare capacity will grow to 5.39 mbpd in May and average 5.2 mbpd for the entire year. The EIA expects that to rise to 5.66 mbpd in 2011.

Without getting into the politics of the prediction and the fact it will change every month from now until the end of 2011 it is still hard for me to believe that oil prices are holding at $82 with that much spare capacity available. Something does not compute.

From the other side of the pond the new OPEC estimates claim they will need to produce another 190,000 bpd in 2010 to satisfy demand. OPEC said lower natural gas liquids production would require the increase in crude output.

OPEC raised their outlook for global demand by 120,000 bpd to 85.24 mbpd. That is 880,000 bpd higher than 2009 and 80,000 bpd more than it predicted in last months report.

The IEA will produce its own monthly report on March 12th.

The chief economist for the IEA, Fatih Birol, said on Tuesday the "era of cheap energy is over." He said prices will remain on the high side due to structural changes rather than cyclical changes. He said the fundamentals of supply and demand will be the major drivers of higher prices with speculation factors amplifying that effect.

Mr Birol has finally started drinking the kool aid and he is trying to bring the 26 IEA nations into the fold bit by bit with cautious comments. Birol used to be a believer in the oil is everywhere theory and the IEA continually predicted every growing production through 2030 with production quantities over 120 mbpd.

Two years ago the IEA went on a hunt to find the real answer to the peak oil claims after more and more recognized individuals switched over to the peak oil side. The IEA surveyed 800-900 major oil fields in 2008-2009 to determine true production levels and accurate depletion rates. What the IEA found scared them and Birol has been trying to bring everyone to the realization that the outlook has changed without saying we screwed up.

It is hard for the IEA to go from estimates for future production of 120 mbpd to comments like "we will never see 90 mbpd" in the space of 24 months. If they could miss the target by 25% in only two years then what kind of credibility would they have left.

Instead Birol has been whittling away at the old IEA projections every chance he gets in an effort to carefully and calmly slim down those projections over years rather than all at once. I believe the current "official" estimate is for 105 mbpd but the comments from insiders in the IEA are in the "we will never see 90 mbpd" category.

The IEA found that depletion rates were much higher in giant fields and future production forecasts were much lower. The IEA found that the depletion curve on fields that have already peaked was much sharper and now they are running scared.

Birol said on Tuesday "If global demand remained at the current 85 mbpd the world would have to find and produce another 45 mbpd of new oil between now and 2030 just to compensate for declining production in existing fields." That is the equivalent of five more Saudi Arabia countries.

Mr Birol, reality is a tough nut to swallow. Have some more kool-aid and it will go down easier.

Jim Brown

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